Don’t think so this time. What the rest of the EU fears is that if Greece is thrown a life preserver that will encourage other leftist governments like Spain to seek the same debt relief.
No, I think the Germany (let’s face it it’s the Krauts that call the tune in this case) will insist that the Greeks honor their commitments and if not they will let them default and go their own way with the drachma. The EU is strong enough now to weather that. And it will be an instructive lesson to other leftist governments who might want to try to skip out on their debts.
“No, I think the Germany (let’s face it it’s the Krauts that call the tune in this case) will insist that the Greeks honor their commitments and if not they will let them default and go their own way with the drachma. The EU is strong enough now to weather that.”
You may be right.
My take is a bit different.
I don’t think Germany will have a choice. The reason I say this is because the largest holders of Greek bonds are other EU countries and their leading banks. On top of the face value of the bonds are the gigantic pyramid of derivatives.
Frankly, Germany will holler and protest and complain. In the end, if they don’t help Greece, here’s what will happen:
Greece will leave the Euro in order to recapture their ability to print money.
Greece will immediately order all banks to switch to drachmas.
Greece will default /renounce their sovereign debt.
Greece will massively print drachmas.
Other nations will hold bonds that are worthless and will suffer loss. Large EU banks will suffer immediate loss and their balance sheets will no longer meet international Basel Banking standard. Many will not survive.
This will set off a flight of capital from Europe to the Dollar (already happening)
Derivatives will go off like a time bomb.
As the saying goes... If you owe your bank $100,000, it’s your problem. If you owe them a $1,000,000,000, it’s their problem.
In any case, I still believe three nations will leave the euro as a currency and possibly the EU itself.
What happens there is a foretaste of what will hit our own shores a year or two later.
And I do hope you are right and I am wrong. I just don’t see any way around it. Even if Germany concedes, it will just postpone the inevitable.
Best